Outsourcing :Makes Companies 7 times more profitable and creates 3.5 times more local jobs
Most People Indian/Chinese/ IT companies work at 1/10 cost and Make products of Developed world competitive in International Market. Let us see how?
Suppose a product Cost 100 dollar/Euro.
If any modification on Software worked in Euro-zone or US
then it cost suppose 30 Euro/dollar.
Total Cost becomes : 130 Euro /dollar
But if done in third world it cost just: 5 Euro. Then Cost is 105 Euro.
suppose its sold at 140 Euro. Selling Price
Now By outsourcing company profit is 35 Euro/dollar
while Not outsourced profit: 10 Euro.Ratio of Profit Outsourced:Not Outsourced 1:3.5 or 2:7..
Now Money saved can be used creates more employment in Developed world.
For Each job outsourced it can create 3.5 times more job in local market. As you can see job Euro job cost 10 while saving in outsourcing was 35. for 35/10 number of jobs created locally.
This is More related to software. But look at some more details Even developing countries also buys those product since the product become affordable to them. Thus increasing sales many fold. So actual Effect many be 6 to 7 times more local jobs.
What developed world needs to move more on top of it to Earn more revenue.
See here developed world Earned 35 Euro but developing world 5 Euro.
So For Each Unit sold developed world Earn 7 times more money then the country where it is outsourced.Why I say Cyber Coolie?1. Developing world not only earn 1/7 revenue But Also looses it grip on Local Product market. As those product take market. So Developed world has 7 times more Revenue2. Product development capability of local market is permanently Killed. Since most workforce gets diverted to either Outsourcing provider or Captive Centre due to Dollar or Euro Vs rupee/yuan Cost arbitrage. As Starting Salary in these jobs due to arbitrage looks very high compared with startup which initially start selling in local market.3. Third Most important These Jobs are Just Contract dependent. As Parent company takes can shift these jobs to any other country any time. Let suppose 20% contract given to some other country means 20% jobs gone at once.As these are contract based Jobs.
So To whose benefit the Job serve.(Developed World)
Think A software Company wins a Contract. Of course with Every contract the learnings company keep moving up the value chain. But more up the value chain it moves more benefits to developed world by same calculation given above. As profit difference in higher value chain products would be large. So More Outsourcing Higher value chain mean more Revenue for MNC and more Jobs for local Market.Calculation:
suppose High value chain Commands 50% more premium. Then Every Ration will increase by 50%. So 3.5 times more revenue becomes. 3.5+1.75=5.25 times more revenue
and 7+3.5= 10.5 times more local jobs for high value jobs.